Bank of Japan Officials Signal More Gradual Rate Hikes Toward Neutral

Bank of Japan policymakers have reinforced expectations that the central bank will keep raising interest rates in measured steps, after lifting its benchmark to 1% in June. A summary of opinions from the June meeting showed broad support among board members for continued tightening, on the view that underlying inflation is moving closer to the 2% target while financial conditions remain accommodative. Several members argued the policy rate still sits below the estimated neutral level of around 2% and should be moved closer to it to give the bank greater flexibility to adjust policy in either direction. Board member Naoki Tamura said he envisages raising the rate by 0.25 percentage points at intervals of a few months toward neutral, and that the pace could accelerate if inflation risks intensify. Deputy Governor Ryozo Himino separately warned that wholesale inflation has been accelerating as firms pass on higher costs linked to the Middle East conflict, raising the risk that underlying inflation could exceed target. Not all members agreed, with one cautioning that higher rates could weigh on investment and demand, arguing for holding steady.